Amazon Testing Taxis for Deliveries

San Francisco-based reporter Greg Bensinger broke the news that Amazon was experimenting with package deliveries by licensed cab in San Francisco and Los Angeles using taxi-hailing mobile app Flywheel and exploring using the service on a broader level, according to sources. This is Amazon’s latest test of ways to compete more directly with brick-and-mortar retailers, and to seek alternatives to United Parcel Service Inc., FedEx Corp. and the U.S. Postal Service.

Forget UPS and the Postal Service, your next Amazon.com Inc. package may arrive in a taxi.

The e-commerce giant this fall tested package delivery by licensed cab in San Francisco and Los Angeles using taxi-hailing mobile app Flywheel, according to people familiar with the matter. Amazon is studying the broader use of taxis as delivery vehicles, those people said.

Taxis represent Amazon’s latest experiment to speed package shipments to compete more directly with brick-and-mortar retailers, and to seek alternatives to United Parcel Service Inc., FedEx Corp. and the U.S. Postal Service after shipping delays last Christmas.

Since then, Amazon has tested its own delivery service, broadened its use of regional couriers, teamed up with the Postal Service to deliver fresh groceries and is expected to open a Manhattan storefront for returns, pickups and same-day dispatch. Amazon also is developing aerial drones for package drop-offs.

Forrester Researcher analyst Sucharita Mulpuru said Amazon may be developing a “same-day delivery algorithm,” software designed to evaluate a variety of delivery services at any moment, based on which is fastest and cheapest.

Brick-and-mortar retailers have fought back by converting their stores into mini-warehouses, offering same-day and one-hour delivery, as well as in-store pickup of goods ordered online. Macy’s Inc. and Kenneth Cole, among others, rely on startups to deliver from their stores using fleets of professional couriers and so-called crowdsourced drivers.

“Amazon really created this market for faster and faster delivery, and if you’re a retailer, you’ve got to do something to compete against that, ” said Greg Bettinelli, a partner at Upfront Ventures, which is an investor in same-day delivery startup Deliv. “But that also means Amazon can’t stand still, they’ve got to keep innovating.”

For its recent test, the people familiar with the matter said, Amazon joined with Flywheel Software Inc., whose cab-hailing mobile app competes with Uber Technologies Inc. and Lyft Inc. Amazon summoned cabs through the Flywheel app to mini-distribution centers before loading them with as many as 10 packages bound for a single ZIP Code, paying about $5 per package for delivery within one hour, according to the people.

With taxis, Amazon also may be seeking to contain shipping costs, which have risen annually as a percent of sales, to 8.9% last year from 7.2% in 2009. Amazon in October posted its biggest quarterly loss in 14 years amid a 32% jump in shipping expenses.

The Flywheel deliveries were typically done in the early morning when the cabs had fewer fares and were less likely to be noticed by customers and competitors, said the people familiar with the matter.

Flywheel, based in Redwood City, Calif., is set to announce a new round of fundraising this month and an expansion to 10 major cities, from its current operations in Seattle, San Francisco and Los Angeles. It has limited operations in Oklahoma City and Daytona Beach, Fla., among other smaller cities.

Traditional cab companies have seen their sales slide under pressure from Uber and Lyft, which connect riders with drivers through their smartphones, rather than by hailing them on the street, and automatically charge their credit cards. Using cabs as delivery vehicles isn’t new: Daimler AG’s mytaxi cab-hailing app has made deliveries for European retailers and had planned to expand the service to the U.S.

Amazon is battling with Google Inc., eBay Inc. and a host of startups in same-day delivery. Google recently doubled to six the number of metropolitan areas where it offers its Google Express same-day delivery from retailers including Target Corp. and Costco Wholesale Corp. EBay last year bought London-based same-day delivery company Shutl and has been testing its eBay Now one-hour delivery service for more than two years, though a spokeswoman said it has no plans to expand beyond five U.S. cities.

Startups like Deliv, Zipments and Postmates dispatch couriers to brick-and-mortar locations to collect orders made online or in store to bring them to customers’ doorsteps, often within one hour. Zipments uses third-party couriers to fetch goods from 250 merchants in Chicago, New York, San Francisco and Washington, D.C. Uber, too, has been testing same-day merchandise delivery in several cities including using bike messengers in New York.

Ms. Mulpuru, the Forrester analyst, said same-day delivery remains a niche service for most Americans.

“The reality is, people generally aren’t willing to pay enough for the service to make it worthwhile for these companies,” she said.

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